THE DOT - if this turns orange or red be alert

Wednesday, December 31, 2008

So far no suprises - as expected the 850 area served as the support for the last two weeks and window dressing drove market ts higher the last days. The SPX should test the 920-40 area and drop from there to 815 at least but rather make a new low in the Jan /Feb time-frame. Followed by another short covering rally turning into a prolonged drop in the 2nd half of 2009 towards 600. All the FED can do is to print money and or produce bubble's by buying up bonds. That's anyway a charade as no one can really benefit from lower rates in main street terms and that's where the pain will be going forward.

Tuesday, December 30, 2008

I think that Mr Rosenberg gets close to the truth we are indeed heading for a depression and all politicians can do about it is to smooth down the effects a bit but no one can undo what was done in 20 years or rather 60 years of global misconduct of political and economical responsibilities. They have created a debt biased mega bubble and the natural effect of creating unreal values is always a contraction to the value point which is still far away and even far more painful. Banks have lost more money than they ever had in real terms and the whole system is based on illusions and misconcept.

Rosenberg, the chief North American economist at Merrill Lynch & Co. in New York, by January had already called the recession that this month was officially declared to have started in December 2007. He also said the Federal Reserve would lower its main interest rate to 1 percent by year-end, one-third of the median estimate of economists surveyed by Bloomberg News; by October, policy makers brought the rate to that level.

Rosenberg, 48, refused to trust his computer models, sensing that the end of the credit and housing-market booms would cause a deeper rout than most analysts thought. Now, he predicts the carnage will cause a 2.5 percent contraction in gross domestic product in 2009, and sees historians calling the current era “GDII,” a reference to the Great Depression.

“We came off a prolonged period of prosperity that was fueled by excessive leverage and an asset bubble of historical proportions,” Rosenberg said in an interview. “Either you believed that this was sustainable or you didn’t. I came to the conclusion that this was going to end very badly.”

Rosenberg, a former Bank of Canada economist, projected in January that the U.S. economy would expand 1.6 percent this year, compared with a median estimate of 2.1 percent in a Bloomberg survey of 64 analysts. By the end of that month, he cut his forecast by more than half.

‘Key Metric’

It all came down to the premise that the downturn in housing was going to have a lagged and severe impact on everything from economic growth to interest-rate spreads and stocks. Personal savings, Rosenberg’s “key metric,” would head higher as Americans tried to repair tattered finances resulting from the slumps in property values and stock prices.

That’s where Rosenberg differed from the majority in his profession, who he said were using terms like “contained” to describe the impact of the subprime mortgage crisis, or “resilient” when talking about consumer spending, which had risen for a record 17 years.

“You have to have your models, but you have to question the results,” Rosenberg said. “You have to ask yourself: Where could the model be wrong this time? Bubbles go further than you think, but they do not correct by going sideways,” he said, quoting the fourth of “10 Market Rules to Remember,” by former Merrill analyst Farrell.

Farrell’s Rules

Farrell developed his “10 Market Rules” during a 25-year stint as chief strategist at Merrill until 1992. He won Institutional Investor magazine’s award for overall stock market direction in 16 of 17 years, according to a Dec. 19, 1992, New York Times article.

Rules one through four, which include the belief that markets always return to long-run averages and excesses in one direction are invariably followed by excesses in the opposite direction, are applicable to this decade’s housing cycle, Rosenberg said.

Farrell’s rules “were a compass in terms of guiding me through the past three years,” said Rosenberg, who joined Merrill in 2000 and holds master’s and bachelor’s degrees in economics from the University of Toronto. Rosenberg will remain at Merrill after Bank of America’s takeover of the New York-based securities is completed on Jan. 1, according to spokeswoman Elana Mehas.

Kindleberger’s Manias

Kindleberger, the late economic historian who taught for 33 years at the Massachusetts Institute of Technology, is famed for his 1978 book “Manias, Panics and Crashes.” The work traced four centuries of boom-and-bust cycles, bringing to light a 17th century frenzy over Dutch tulips that sent investors offering land, houses, farm animals and gold in return for choice bulbs.

The severity of today’s housing bust, and the resulting collapse in credit, indicate that the U.S. won’t soon emerge from the already yearlong recession, according to Rosenberg.

“What we know about periods of asset deflation and credit contraction is that the impact on the economy tends to last for years not quarters,” he said, projecting housing is likely to contract through the end of 2009.

Rosenberg was also among the few predicting a rally in U.S. Treasuries, which have posted their best year since 1995. The average forecast in a Bloomberg survey of 61 analysts at the start of the year was for benchmark 10-year yields to rise to 4.32 percent for the end of December. Rosenberg’s call was 3.70 percent; the lowest projection was 3.5 percent.

Treasuries Rally

Still, none of the group predicted the panic buying that drove yields to 2.04 percent this month, the lowest level since daily records began in 1962. Three-month T-bill rates turned negative this month as some investors in effect paid the government to keep their money.

Rosenberg has long been more pessimistic than the consensus on the economic outlook. That hurt his accuracy when the economy was doing better. He came in the bottom 10th in a Bloomberg analysis of the accuracy of 55 forecasters on GDP, inflation, unemployment and Fed rate decisions for 2006 to mid-2008.

In the stock market, too, few prognosticators foresaw the depth of the decline this year, when the Standard & Poor’s 500 Index tumbled 40 percent, the worst annual retreat since 1931, and $29 trillion was erased from the value of equities worldwide.

Gross domestic product in the three months ending tomorrow will fall at almost three times the 4.1 percent rate previously predicted, said Kyohei Morita, chief Japan economist at Barclays in Tokyo, after reports last week showed industrial production and exports posted the biggest declines on record in November.

“Given the speed and the length of the contraction, this recession could be the most severe in the postwar era,” Morita said. “We expect negative growth will continue for a fifth straight quarter to the April-June period of 2009.”

European December Retail Sales Drop as Recession Deepens

By Jana Randow

Dec. 30 (Bloomberg) -- European retail sales fell for a seventh month in a row in December as the deepening recession curbed consumer confidence and spending, the Bloomberg purchasing managers’ index showed.

The measure of sales in the euro region rose to 41.4 in December from 40.6 in November, remaining below the 50 limit that indicates contraction. The index, based on a survey of around 1,000 executives compiled for Bloomberg by Markit Economics, also showed that retailers cut jobs for a ninth month and profit margins fell at a record pace.

Consumer confidence fell to a 15-year low in November after the euro region slipped into its worst recession in as many years. With manufacturing and services industries contracting in December at the fastest pace in at least a decade, the European Central Bank will begin next year under pressure to cut interest rates further.

Friday, December 26, 2008

If you ever wanted to understand what is going on in the financial world - this video explains things to you most professional bankers do not really know or understand. Its easy to understand though but will bring your knowledge to the point you might need to have to understand the ongoing crisis.

Tuesday, December 23, 2008

A long term chart that I will try to publish next days suggests what I have repeatedly told in my blog. Referring to trailing profits and the current assumption of $73, (that's a positive assumption) for 2008 the level we should see to mark a 'value low' would be around 8 times those earnings hence roughly around 600 SPX. Going forward, if the scenario's of GOLDMAN and MER become true (which I in this case do support) around 55-60 area, the markets should even drop at some point to 450-500 later in 2009. All big economic contractions had as an inevitable consequence a contraction of the PE to or even below 8 times. The problem even might be that the contraction of earnings might even be deeper as the fallout from the Wall Street leveraged balance sheets rather asks for a much steeper contraction as losses will be much higher than the current $1 tril. it could easily get a double digit tril. number. The risk is rather that at a given point the governments will not be able to cover the losses and default as well. We will look into that going forward, but in much older blogs I already gathered some calculations.

Excerpt Barron's:

And, once again, they have cut their forecasts, both for the fourth quarter and thus the full year, as well as for 2009. As a result, they now estimate earnings for the Standard & Poor's 500 index will decline in 2008 for the second straight year. Yet these Street analysts still cling to the hopes for a profits revival next year.

A poll of industry analysts by Thomson Reuters shows that the Street expects earnings to remain almost flat in the current quarter, resulting in a decline of 12% for all of 2008, to $73.32 a share. That would follow the 3.5% drop in S&P 500 earnings in 2007.

In 2009, they see S&P 500 profits rising 6%. While that forecast is vastly more modest than the 22% gains for 2009 analysts forecast three months ago, some investment pros are skeptical of even these dampened expectations and anticipate earnings to fall for a third straight year.

So far this quarter, earnings preannouncements by companies have been unfavorable. With 116 companies announcing bad news, the ratio is running four negative announcements to one positive -- twice the normal ratio.

There may some relative bright spots ahead in 2009. Health care, consumer staples and utilities remain the farthest removed from the financial and economic turmoil, and should generate steady albeit modest profit growth.

Merrill Lynch forecasts a 7% drop in S&P profits to $60 a share in 2009. And, Goldman Sachs expects operating earnings to slip 33% this year to $55 a share and fall 5% next year.

Cumulative estimates from industry analysts at Standard & Poor's however, expect S&P 500 profits to rise 25% from $70 a share in 2008 to $83.85 a share in 2009.

The SPX daily counts a SEQ daily 12 today, confirming my assumption that next week is an upside week - basically due to some legal price manipulation, which is called 'window dressing'. The bias might be rather on financials as the BKX made the 13 count today and the NDX Seq being at 9 count is lagging. The 850 support level should mark the low for now and a move to 900 is the aim of the upside move next week. Thereafter, another test of 815 early January should follow.

In the Madoff case, it seems strange that he even took money from close relatives - even one of his sons seem to have invested with him. I suppose he relied on an ever revolving flow of fresh money into the scam as he paid out charities and other investors on a regular basis. Hence, some long-term investors have recouped their principal basically but trusted that they were earning money with it and planed accordingly their spending.

The insane part is with all the armies of lawyers getting engaged now. They could turn out to be the only winners, as hefty legal costs over years of legal battle should be avoided by a new way to settle this issue. The government needs to avoid the usual legal battle and try to show that there are better ways to settle such things as they are also substantially responsible for lacking oversight. In some cases, as funds of funds, it's obvious that they had the legal obligation to make a due diligence, which they obviously did not, hence they have to pay the investors like Santander, which has the funds. In some cases, those special Hedge Funds who entirely invested with Madoff are a criminal case, since as a principal rule no hedge fund can ever put all his money on one bet or trading strategy. They were definitely setup for a fraud scheme in my opinion.The point I do not get as Madoff running a market maker company should have had the know-how to make money at some parts of the last 30 years generated even opportunities for housewives - sorry to use that expression. What I mean is why was he not able to make some money at all? That's the part which I do not get and I still believe there is still an untold story hidden behind it all. Since I know the business quite well, I also know how ungrateful clients can be if you only make 8-10 % a year with sound investments while markets go up 25% - so I doubt that his clients where always a happy bunch with 8-10% profits. Sure, in down years they were very happy about returns. This story is still not telling the truth - too many things do not make any sense when you know how the industry works.

Excerpt:

Madoff Victims May Have to Return 6 Years of Profits, Principal

By Carlyn Kolker, Tiffany Kary and SaijelKishan

Dec. 23 (Bloomberg) -- Like some of Bernard Madoff’s clients, a Florida restaurant owner was lucky enough to withdraw part of his investment before the money manager allegedly confessed to a $50 billion Ponzi scheme. Now he’s worried he might be asked to give it back.

The 53-year-old investor, who asked not to be identified to protect his stake, took out about $600,000 this year from his $1.5 million account, using some of it to pay down a mortgage. He and other Madoff clients who withdrew funds as long as six years ago may be sued on behalf of other victims to return profits and even principal, securities and bankruptcy lawyers say.

“Right now there are Madoff winners and Madoff losers,” said Lynn LoPucki, who teaches bankruptcy law at Harvard University. “Before this is over there will be nothing but Madoff losers.”

Clients of Madoff had about $36 billion with his firm, according to a Bloomberg tally that may include some double counting. Before his arrest on Dec. 11, Madoff, 70, confessed to employees that his “giant Ponzi scheme” may have cost as much as $50 billion, according to an FBI complaint. His misconduct may have stretched back to at least the 1970s, two people familiar with the government’s inquiry of Madoff said last week.

The Florida investor, who first gave his money to Madoff five years ago, said he had no hint of fraud and would go to jail rather than give up the amount he took out.

Irving Picard, the trustee appointed to liquidate Madoff’s brokerage, Bernard L. Madoff Investment Securities LLC, holds the fate of the restaurant owner and other investors in his hands.

Enough Funds Left?

Picard, who didn’t return a call seeking comment on plans to sue victims to recover funds, said in a court filing yesterday that “there has not been any showing or determination that there are sufficient funds” to satisfy victim claims.

A so-called clawback of paid-out funds in the Madoff liquidation could result in lawsuits against investors such as charities, hedge funds and individuals who redeemed profits and took out principal. Nonprofit institutions such as the Carl and Ruth Shapiro Family Foundation, a foundation controlled by Democratic U.S. Senator Frank Lautenberg of New Jersey, and Yeshiva University relied on funding from Madoff investments.

Lawyers and representatives of the Shapiro and Lautenberg foundations didn’t return calls seeking comment. In a statement, Rick Matthews, a Yeshiva University spokesman, said, “Our lawyers and accountants are in the process of an investigation.”

‘Further Risk’

“Charities are looking at their legal options as regarding their right to recoup money,” said Mark Charendoff, president of the New York-based Jewish Funders Network, whose 1,000 members fund Jewish causes and are assessing losses from Madoff investments. “I don’t know that they’ve been focused on or are aware that they may in fact be at further risk of loss.”

Bankruptcy laws authorize a trustee like Picard to recover money that was distributed as part of a fraud and share it among the victims, LoPucki said.

“The purpose of these laws is to balance the losses among the various investors, but how that balance is supposed to be struck is not clear,” LoPucki said.

Under New York state law, which can be invoked for Madoff recoveries, a trustee can seek redemptions going back six years, said Tracy Klestadt, a New York bankruptcy lawyer.

In a similar case, U.S. Bankruptcy Judge Adlai Hardin in White Plains, New York, ordered investors of defunct hedge-fund manager Bayou Group LLC in October to disgorge profits they’d taken out. Investors were required to pay back any gains they’d redeemed involving “fictitious profits.” Before the fraud was discovered, Bayou paid out more than $135 million, according to court papers.

‘Good Faith’ Rule

Hardin also ruled some investors would have to hand back their principal. Only investors who acted in “good faith” -- a legal standard that makes investors prove they didn’t have knowledge or suspicion of fraud -- could protect their initial stake, Hardin ruled. He said investors could show they had good faith if they didn’t see any “red flags” when they withdrew the funds.

That decision could be a guide for Picard, Klestadt said.

The Bayou decision set a high bar for investors who hope to protect their principal, said Carole Neville, a lawyer representing Bayou investors.

“What the Bayou case holds at the moment, is, if you had any reason to feel uncomfortable about your investment and took your money out, you don’t have good faith,” Neville said.

“On the surface it seems a standard that’s almost impossible for people to meet,” said Robert Crane, president of New York’s JEHT Foundation, a group dedicated to criminal justice matters that relied on donors who invested with Madoff and said it’s closing in January.

Seeking money from investors who say they were defrauded can result in protracted litigation. In the Bayou case, which is being appealed, $20 million of the $33 million recovered from redeeming investors went to pay legal fees, Neville said.d

Monday, December 22, 2008

Isn't that weird that the biggest existing 'Hedge Fund' - the Madoff-whatever - was an open secret some people seem to have know about? As a vey good article in the NYT wrote that some tried out his strategy raising the claim he never could have executed it the way he suggested. As one of my clients told me about an insider group which always made money and one could only get in on an invitation basis a few years ago. I can imagine they were speaking of Madoff but it could also be the so called 'club' Armstrong mentioned in a recent expose he has written. I will put some excerpts of his writings soon in the blog as they are very intriguing. If you do not know, Armstrong had a computer model which predicted most major events perfectly accuratly and was put into prison without trial for 7 years as he refused to sell it to the CIA. The amazing thing is that the SEC had many warnings over a decade without ever acting on it, hence a lot of people can be blamed and sued - that will create a huge bonanza for the lawyers representing them - the problem will be that the non-existing $50 bil. was the foundation for other businesses, which is now in jeopardy (like real estate), as it was used as coletteral to fund and now all protect investors. What they really do, as Armstrong claims rightfully, is to keep the smaller players and firms overregulated so the big ones can move as they are pleased.Fairfield Greenwich’s Madoff Investment Triggers Suit (Update1)

Noel’s Greenwich Sentry fund invested $220 million with Madoff and his Fairfield Sentry fund invested $7.3 billion solely in Madoff, jeopardizing investors’ interests while collecting “millions of dollars in fees,” according to a complaint filed Dec. 19 in New York State Supreme Court in Manhattan.

Fairfield Greenwich Group founding partners Noel, Andres Piedrahita and Jeffrey Tucker are accused of breach of fiduciary duty, negligence and unjust enrichment, as are Brian Francouer and Amit Vijayvergiya of FG Bermuda, a Noel affiliate. The complaint was filed as a class action, or group, lawsuit on behalf of investors.

“FG defendants failed to perform even a minimum level of due diligence regarding the activities of Madoff,” according to the complaint.

Madoff, 70, was arrested Dec. 11 and charged with running an alleged $50 billion Ponzi scheme based on his own admission. He remains under house arrest in his New York apartment.

Noel’s 20-year business relationship with Madoff helped earn the group “millions of dollars in fees,” according to the complaint.

Fairfield Greenwich Group said it’s assessing its Madoff- related losses and is willing to cooperate with government investigations into the alleged fraud, according to a statement posted Dec. 16 on the fund’s Web site.

“We are seeking to gather all facts, work diligently with counsel to determine the appropriate course of action toward recovery, and stand ready to assist the authorities with their investigation,” the statement said.

Lead plaintiffs Pasha and Julia Anwar, who invested in Fairfield Greenwich funds, claim Noel’s team ignored the “red- flag warning” that Madoff’s investments produced small, steady gains in a declining market.

The NDX daily chart on the left has the same price pattern as the recent SPX chart - we made it to the resistance line and briefly above the 50 day MA. 1250 proved to be a valid resistance for now and we are heading now for 1150, which should hold for this year, as we can expect next week rather an upside window dressing move. The real test of market direction is due early next year, as we will be driven by 2 major events- the $1 trillion aid package from Obama which will be accompanied by new announcements from Europe and Asian countries coming up with big spender pockets -against a horrible earnings season. From a technical point, we need to test the low once again to create a another rally and even a stronger one against all the logic of fundamentals - that might happen in January or latest by February, as we get to a time frame with a strong bounce potential. Reality will be seen as soon as people recognize that the 'R' word might have to be replaced by the 'D' word as the latest Barron's survey shows that people are a bit too much upbeat about the prognosis. But that is due in the 2nd half of 2009 as against all the programs economies might still deteriorate further. These markets need to drop a lot more in 2009 to reflect a value which is worth investing in which is roughly half of current levels.

Friday, December 19, 2008

McLaren (worth reading) comes basically to the same conclusion as my analysis does - the ongoing zigzag pattern from 1937 is pretty much the same as the current situation. We are in a 100 point range right now 815 -915 but at some point we will have extensions to the upside, hence 1000 and 700 more likely in Jan. For now, we should expect a few days of weakness before the holidays but we will get an upside attempt after the holidays for window dressing. Early Jan should be with a clear downside bias and another test of the 815 level is due. Obama's stimulus package will be close to $1 trillion and might trigger another upleg to 1000, but at the end of the day, the yearly GDP of America is a roughly $14 trillion economy - so what can $1 trillion over 2 years produce other than to cover some erosion?Definitively not a miracle.

Every one is assuming this rally is a counter trend rally against the bear trend and are looking to sell into it.These will be traders looking for the opportunity to position in the direction of the trend and advisors and individuals who missed selling at the very anemic counter trend rally from July through August and will be desperate not to miss this opportunity to lighten up.

Therefore we might see something “abnormal” in the form of this counter trend.Right now there is a very weak wave structure up since the November low and on that basis this rally could end anytime.The price level I have been using for a top to a counter trend continues to be 950 to 1000, and is a very high probability.

NOW LET’S LOOK AT ONE OF THE TWO FORM THIS COUNTER TREND MAY TAKE

THE CHART BELOW IS THE 1937/1938 COUNTER TREND RALLY.

This pattern of trend is a bit abnormal for a counter trend rally.Most intermediate term counter trend rally jam up and then run on the side to allow for distribution and don’t do any downside testing anywhere near the low until the counter trend rally is complete.In the circumstance of 1937 there was an exhaustion low followed by a break of that low, just as our circumstance.Followed by a weak rally and a down side test close to the low and then a run back to marginally above resistance.This was followed by another run down to support and a rally.Then a final run down to break the low and wash out the sellers.Our current circumstance could show a longer leg down in time but this basic pattern of counter trend remain a probability with a lot of investors and traders looking for a normal style of counter trend.

If there is a normal form of counter trend the rally could end around the 5th through the 8th of January and that time historically can bring in a change in trend.In 1937 the counter trend last exactly 92 calendar days from theNovember 23rd low (our current low was November 21st) and 126 calendar days from the exhaustion low.That gives us the date of February 13th through the 19th.If the index is going to repeat this style of counter trend it will bounce up from the 800 to 820 price level.

Thursday, December 18, 2008

Finally, the weekly oil SEQ count is about to make the 13 and bottom. The daily count confirms that. The evidence is also confirmed by a technical breakout of VLO to the upside. The CRB is in a similar mode and we can expect a general upturn of commodities in Q1. In practical terms, the whole idea gets a supporting spin by the government aid programs around the world, which will all demand commodities to accomplish the projects. Upside target is 38 - 50% of the 107 move back, hence we can expect a 80 target. The fact that the once very bullish analysts from Goldman and Mer have turned bearish is a little gimmick effect, but not less of a help, as it completes the picture.

Wednesday, December 17, 2008

The SPX chart has made it above the 50 day MA, which is not a big deal and heads for the channel resistance around 940. The 50 week MA cross 200 week MA effect is fully developing - hence a strong snap back into the counter direction. The market seems to shrug off bad news fairly well for now, but do not believe for a moment that the market is cheap. Conversely, it's rather expensive now but as we are heading for year-end and more upside manipulation can be expected (a legal one was the steep rate cut of the FED ), before the market takes another dive in early January, latest. In the last 100 years, every steep recession has had its low around 7.5 times trailing earnings. If we generously take 70 for the SPX, 500 would be the level but the earnings of today are not equal to older ones as accounting rules allow for plenty diluted effects to boost the formal earnings.

Basically the government works for the establishment and has no other function than to establish laws, which allow them to screw the people and cover it up. This whole thing needs a dramatic overhaul and investigation but who should conduct a prudent one? The CIA produced false evidence to start a pathetic war, the FBI seems busy with controlling its own citizens, democracy is basically tuned into a legal mobster organization where the 'power' can act as they please. The Administration has gathered powers it should not have and the system has developed its own rules and regulations beneath the regular frame work of the constitution and laws. The Madoff case is just an indication of how the systematic undermining has reached out.

It's outrageous how the government throws around trillions of dollars to save the financial interests of a few but gets discriminating when it comes to $14 bil. for carmakers. The financial industry does not survive on its own merits either but that seems to be a different logic. Even Goldman would be bankrupt without the massive bailout the government made - so why do some Republican Senators get suddenly smart when it comes to the auto industry, which at least produces a real good? The finance industry mostly produces digital and hypothetical products, which are as dangerous as the whole nuclear arsenal of weapons. Things are completely out of balance or rather completely insanewhen it comes to taxpayers' money allocations. The same money spent for the institutions could have been spent much wiser and more effectively, but that's not the intention of the people in charge as they are responsible for the mess anyway.

SEC Failed to Act on ‘Credible, Specific’ Madoff Tips, Cox Says

By Jesse Westbrook

Dec. 17 (Bloomberg) -- U.S. Securities and Exchange Commission Chairman Christopher Cox said the agency failed to act for almost a decade on “credible and specific allegations” of wrongdoing by Bernard Madoff, who authorities say bilked investors of as much as $50 billion.

Allegations dating back until at least 1999 “were repeatedly brought to the attention of SEC staff, but were never recommended to the commission for action,” Cox, 56, said in a statement yesterday. He announced an internal probe to review the “deeply troubling” revelations.

“He’s revolted by what he found out, but it’s also in his interest to be revolted,” said James Cox, a securities law professor at Duke University in Durham, North Carolina who isn’t related to the SEC chairman. “He’s taken a lot of heat over SEC enforcement.”

The SEC, already faulted in connection with the collapse of Bears Stearns Cos. and Lehman Brothers Holdings Inc., now faces criticism for failing to detect what Madoff termed “a giant Ponzi scheme.” Senate Banking Committee Chairman Christopher Dodd yesterday called on the agency to explain how the “massive fraud” went undetected. Madoff, 70, was arrested Dec. 11 after he allegedly told his sons that his eponymous firm, founded in 1960, was no more than “a giant Ponzi scheme,” the SEC said.

Instead of wielding subpoena power to obtain information, SEC staff “relied upon information voluntarily produced by Mr. Madoff and his firm,” Cox said.

Mandatory Recusal

The internal review will include “all staff contact and relationships with the Madoff family and firm,” he said, and mandate the recusal any SEC employee with more than an “insubstantial personal” contact with Madoff and his family.

Eric Swanson, a former assistant director of compliance and examinations at the SEC, is married to Madoff’s niece, Shana, who was a compliance lawyer at the Madoff firm. Swanson left the SEC in August 2006 and is now the general counsel of Bats Trading Inc., the third-largest U.S. equity exchange by trading volume.

Bats defended Swanson.

“Eric Swanson worked at the SEC for 10 years and did not participate in any inquiry of Bernard Madoff Securities or its affiliates while involved in a relationship with Shana, whom he met through her trade association work in the industry,” Bats spokesman Randy Williams said in statement. “Throughout his career, Eric has displayed the highest ethical standards and his reputation has been, and continues to be, above reproach.”

Cox said a review of the SEC’s records so far has exposed “complicated steps that Mr. Madoff took to deceive investors, the public and regulators.” He said Madoff “kept several sets of books and false documents, and provided false information involving his advisor activities to investors and to regulators.”

The SEC was under fire before Madoff’s fraud came to light. The collapses of investment banks Bear Stearns and Lehman this year tarnished the SEC’s reputation and lawmakers such as Dodd and Senator Charles Grassley, an Iowa Republican, have questioned its vigilance in enforcing securities laws. Cox, a Republican appointed by President George W. Bush, has said he will leave office at the end of the Bush administration. His term officially ends in June 2009.

No Inspections

SEC Inspector General H. David Kotz released reports this year critical of the agency’s conduct. He said in one that the SEC “failed to carry out its oversight” of Bear Stearns, the New York investment bank that faced collapse in March. He’s also questioned the handling of investigations by the agency’s enforcement staff.

The SEC hadn’t inspected Madoff’s investment advisory business since he registered the firm with the agency in September 2006, two people familiar with the matter said. The SEC tries to inspect advisers at least every five years and to scrutinize new firms in their first year of registration, former agency officials and securities lawyers said.

SEC examiners reviewed Madoff’s brokerage business in 2005 after an investment manager, writing to the agency, and press reports questioned the validity of his investment returns. The SEC’s enforcement division completed an investigation involving the company last year without bringing a claim.

Tuesday, December 16, 2008

Helicopter Bernie is full filling his promise to throw money from Helicopters sometime soon I suppose even literally- in a 'bold' or rather more desperate move the FED cut interest de facto to Zero today, which is scary on one hand as it means that people can not earn any money in their pension plans other than to take risks which they should not do with the times ahead. On the other hand, they need to fight the upcoming depression but to allow Wall Street to pay double digit bonuses from taxpayers money is a wrong path. Unfortunately, no commoner will be able to borrow money at that rate, which would be the right thing to do, as banks do not create jobs and the government spending will be limited to the extend that though the money they print has no value and will just delay the effect, which is inevitable in a substantial and painful contraction.

Look at what happened from a distance and you will see that Wall Street did basically what Madoff made, only on a bigger scale. They produced paper profits with creating bubbles but that is by the same token the responsibility of the governments. The fact that faked money profits were paid out to some (mostly wall street but now as reality kicks in as with Madoff), taxpayers have to pay the bill or, more generally, the world economy has to suffer for that excessive greed. Things have to be downsized to reality - borrowing money is not a natural thing to do as some (Rothschilds) wants us to make believe. They washed our brains with the Hollywood machinery, which trains our social behavior with films and soaps and wants to make us believe that paying down mortgages and student loans and credit cards is the natural way to live - that is not a natural design at all. Slavery was once done with chains and punishment - now they work much more sophisticated with mortgage loans and fear you might lose your job. Actually, it's a strange business banking -- they take the money from your neighbour for a low interest they pay and borrow it to you for a much higher. Governments allow them to charge insane interest on credit cards - do not think government protects citizens interests that's just the idea they sell basically they organize that a small group can screw the many. I think we should switch to Vulcanianphilosophy as I learned recently from a 'TV show' the interest of the few have to stand back for the interest of the many' - that's a quote from Spock on Star Trek - we are living the opposite so far, which brings us all into this kind of mess.

Fed Cuts Key Interest Rate To Between Zero and 0.25%

The Federal Reserve has cut its target for a key interest rate to the lowest level on record and pledged to use "all available tools" to combat a severe financial crisis and prolonged recession.

The central bank says it reduced the federal funds rate, the interest that banks charge each other, to a range of zero to 0.25 percent.

CNBC.com

That is down from the 1 percent target rate in effect since the last meeting in October.

Federal Reserve Chairman Ben Bernanke and his colleagues also pledged to use "all available tools" as they struggle to contain a financial crisis that is the worst since the 1930s and a recession that is already the longest in a quarter-century.

With the Fed's key rate now essentially zero, the central bank is moving into uncharted territory. Nonetheless, Fed Chairman Ben Bernanke has made it clear the Fed isn't running out of ammunition to fight the worst financial crisis since the 1930s.

The Fed underscored its committment to use extraordinary measures, including using its balance sheet to support the credit markets.

The Fed empoyed a similar telegraphing approach during the 2003 period when there were worries about inflation. That successfully managed the market's expectations.

In terms of other measures, the Fed restated its intention to buy large quantities of GSE and MBS debt to lower mortgage rates, a plan it first mentioned more than three weeks ago.

The Fed, however, remained cautious about another unusual measure, which Bernanke first floated two weeks ago. The statement said the central bank was still "considering" buying long-term securities, which is also thought to be aimed at lowering borrowing costs by going around commerica banks.

The BKX looks like almost all indices - it still needs to dip to complete this little downleg but a countermove is likely thereafter. Hence, we are in a kind of sideways consolidation for the remaining year as we head for the lowest interest rates ever scenario in history. This will not solve the problems, it is rather an indication how severe the problems are - even the 'Midas' Goldman touch is gone. Banks are heading for a nightmare 2009 but Obama will produce a fake-out "we can make it" program to boost the economy - Japan tried that one for two decades without much success.

Expect some selling pressure for the next days after the FED decision is out and some upside manipulation in the days around the holidays to put it briefly.

In the following article, some strange option trades are displayed but I do not believe that that cuts down to the bone of the story. Something strange is still not discovered. He seems to have received $30 bil. at least and it's real hard as a pro to loose that kind of amount. Or he did that deliberately knowing someone else would be on the other side of the trade. We have not heard the real story and I am sure much more amazing things will be coming out of the DARK, SECRET CORNER ONCE THEY DIG DEEPER. The sheer amount is unbelievable but that he lost it all is almost not possible basically, but since he claims he did that for a longer time the Ponzi scheme, it is not related to the last months market downturn as well. Something does not make any sense and I am sure more people or entities are involved.

Excerpt from WSJ:

Madoff Ran Vast Options Game

A federal judge ordered the U.S. operations of Bernard L. Madoff Investment Securities LLC to be liquidated, as fresh details emerged of trading discrepancies that offer clues as to how the New York broker may have run the epic scam alleged by authorities.

Investigators are also focusing on how Mr. Madoff raised money and what role his wife may have played in that process, people familiar with the matter said.

The judge appointed a trustee to take control of whatever assets are left at the firm at the request of the Securities Investor Protection Corp., a nonprofit created by Congress and funded by the securities industry. The SIPC will attempt to return to clients as much as possible of the more than $17 billion the firm reported it held at the start of this year.

Last week, Mr. Madoff told two senior employees at the firm that almost all the firm's money was gone and investor losses totaled at least about $50 billion, according to a criminal complaint filed by federal prosecutors. People familiar with the matter said those employees are Mr. Madoff's sons, Mark and Andrew. The sons told the Federal Bureau of Investigation that Mr. Madoff described his firm's investment-advisory arm as a "giant Ponzi scheme."

On Wall Street, traders started picking apart Mr. Madoff's investing strategy based on client statements -- which they said raised red flags that should have been obvious to the banks and investment firms that promoted Mr. Madoff. Several concluded that while Mr. Madoff's stated strategy was valid, it would have been impossible to execute with the amount of money he was managing.

Mr. Madoff told clients he was using a fairly common options-trading strategy to generate modest but steady returns for more than two decades. The strategy involved buying stocks, while also trading options -- which grant the right, but not the obligation, to buy or sell securities at pre-established prices in the future -- in a way designed to limit losses on the shares.

People who analyzed client statements said Mr. Madoff's firm couldn't have bought and sold the options he claimed because those totals would have outstripped total trading volume those days.

'Seemed Implausible'

Some investment advisers steered clear of Madoff funds, in part because of discrepancies like these. "It seemed implausible that the S&P-100 options market that Madoff purported to trade could handle the size" of Madoff's estimated $13 billion in assets, wrote James Vos and Jake Walthour of advisory firm Aksia LLC last week in an explanation of why they didn't recommend funds that invested with Madoff to clients.

Other traders said that while the strategy, when properly used, does limit volatility, it generally wouldn't produce gains in a declining stock market. Account statements from Mr. Madoff's firm show small, steady gains each month, regardless of the market's direction.

Bernard Madoff

Individual investors were tallying their losses. Carl Shapiro, a 95-year-old apparel entrepreneur and investor, had $545 million with Mr. Madoff -- creating what could become the largest personal loss yet in the scandal. Carey O'Donnell, a spokeswoman for the family, confirmed that Mr. Shapiro's charitable foundation, the Carl & Ruth Shapiro Family Foundation, invested $145 million with Madoff.

Mr. Shapiro and his family had an additional $400 million or more invested with Mr. Madoff, she confirmed. It is unclear what portion of Mr. Shapiro's wealth that represents although people close to the family say it could be half or more.

Mr. Shapiro, a widely respected philanthropist, was one of Mr. Madoff's earliest and largest investors. Several investors in Palm Beach and Boston say they invested with Mr. Madoff in part because of Mr. Shapiro's association.

In a statement yesterday, Mr. Shapiro said that "at no time did I ever formally introduce individuals as potential investors with Mr. Madoff." Mr. Shapiro said he had been friends with Mr. Madoff for more than 50 years, and "any decisions I or my family foundation made to invest with him were based on his apparent business acumen, sense of integrity and commitment to sound investing principles."

More

A typical account statement provided to clients by Mr. Madoff's firm showed him buying shares of blue-chip companies such as Intel Corp., AT&T Inc. and IBM Corp. and also trading options on the Standard & Poor's 100-stock index, which tracks the very largest stocks. Then, at the end of each month, all of the stocks are sold, and the cash put into Treasury bills.

Holding Period

That was another red flag, because the options strategy he used, when practiced by others, typically held its investments for longer periods, says Millicent Holmes of Crowe Wealth Management, who had researched Mr. Madoff's firm as a possible investment but ultimately steered clear.

Experts say his investing strategy would be difficult to pull off on a large scale. The reason has to do with the "put" and "call" option trading central to the approach.

A "put" is a contract giving its holder the right to sell a stock at a certain price, while a "call" involves the right to buy at a certain price. Buying "puts" and selling "calls" are each a type of bet that prices will fall: Buying a "put" involves paying a small sum for an option that increases in value as a stock declines. Selling "calls," similarly, pays off if prices fall. In addition, the sale of the "call" contract itself brings in a bit of income.

In the so-called "split strike conversion" strategy used by Mr. Madoff, an investor tries to balance these maneuvers to generate predictable returns and minimize losses. The investor holds a portfolio of stocks, then sells "call" options on a stock index, and buys "puts" on the same index.

For example, a client statement reviewed by The Wall Street Journal for last month showed that on Nov. 12 Mr. Madoff moved $500,000 out of U.S. Treasury bills, as well as $1,460 out of a Fidelity Investments money-market account. That cash was invested in nearly three-dozen stocks, such as Exxon Mobil Corp., Proctor & Gamble Corp. and Microsoft Corp.

That same day, Madoff bought 11 "put" option contracts on the S&P 100 for $19,591 and sold 11 "call" option contracts on the S&P 100, which took in $17,369.

During this time, the stock market was in a steep decline. By Nov. 19, when the firm next did a trade, the S&P 500 fell nearly 10%. On Nov. 19, Mr. Madoff closed out those particular options trades, making $14,000 on the "call" and $21,000 on the "put" for a net $35,000 profit.

On the surface, this was a straightforward example of the strategy. However, the problem is that if Mr. Madoff replicated the trade firmwide, as he was thought to be doing, the trading wasn't showing up in the options market. On Nov. 11, if it took 11 contracts to hedge a half-million dollars, it would have taken 22,000 contracts to protect $1 billion. Mr. Madoff claimed to be managing $17 billion.

But on Nov. 11, only 393 of the "call" contracts the firm sold actually changed hands, according to the Chicago Board Options Exchange. And trading totaled 183 in the "put" options he bought. The so-called open interest in both those contracts -- the measure of contracts outstanding -- was just 4,639.

Madoff records from another client suggest a similar discrepancy in 2007. According to a copy of the client's statement reviewed by the Journal, Madoff bought 114 options contracts based on the S&P 100, while selling 114 others at a different price. The 114 "call" contracts Madoff entered into represented about 10% of the trading volume recorded that day for that contact at the Chicago Board Options Exchange. The 114 "put" contracts represented about 20% of the volume, meaning that if Madoff would have executed similar trades for five other clients, the firm would have made up the entire trading in the options contract that day.

Ronald Tee Johnson/Palm Beach Today

Entrepreneur Carl Shapiro, at Hebrew SeniorLife in Boston, had $545 million invested with Mr. Madoff.

Meanwhile, between Nov. 11 and Nov. 19, the S&P 100 lost nearly 10%. The statement reviewed by the Journal didn't provide a line updating the value of the stocks in the account, but if the stock portfolio behaved as designed and mirrored the move in the index, it would have been down roughly $50,000, more than erasing the $35,000 gain in the options position.

A lawyer for Mr. Madoff declined to comment on the options strategy.

Market Volume

Some investors who asked about the options trading were told the firm also bought and sold options off-exchange, or "over the counter," a person familiar with the matter said. Its unclear whether the over-the-counter market was big enough to support the volumes the firm was reporting.

The new court-appointed trustee for the U.S. arm of the Madoff firm, Irving Picard, will mail claim forms to customers of the firm, review their claims and determine how to satisfy them using a combination of firm assets and funds held by SIPC, the securities-industry nonprofit group helping to oversee the firm's liquidation.

SIPC is set up to provide as much as $500,000 per customer for claims of theft from a brokerage firm. With about $1.6 billion currently on hand, SIPC could satisfy claims of more than 3,000 customers, said its CEO, Stephen Harbeck.

It's not clear how many customers Mr. Madoff's firm had. The process could take months, Mr. Harbeck said. "We'll proceed as quickly as we can."

Monday, December 15, 2008

Iraq got $120 bil. in aid from the US taxpayers. Most of that money vanished or was allocated to projects which were not sufficient and overpriced. Basically, it gets stolen in cooperation with local and foreign cooperations and some people get really rich. The same president who vetoes chidren's healthcare destroys American taxpayers $120 bil. for obscure aid projects and is very discriminating when it comes to aid 2-3 mil working Americans in the car industry - an impeachment of that very president is more and more a mandatory obligation. I think the Iraqi reporter who threw his shoes at Bush was right to do so - this guy just simply does not get it.

U.S. President George W. Bush said on Monday an announcement on a auto industry rescue was not imminent, leaving the industry's fate clouded in uncertainty for a little longer.

AP

Chevrolet Dealership

"We're not quite ready to announce that yet," Bush told reporters on Air Force One during a flight from Baghdad on an unannounced visit to Afghanistan.

He had been asked when he might make an anticipated announcement about tapping a $700 billion financial industry bailout fund to aid General Motors [GM4.100.16(+4.06%)], Ford Motor [F3.130.09(+2.96%)]and Chrysler.

Asked whether he was leaning toward using financial bailout funds, Bush said: "I signaled that that's a possibility. in charge of assigning.ically a few people got very rich as usual when aid programs are allocated in foreign countries as they steal the money with the help of some government employee's who arBush Warns Auto Makers A Deal Is Not Imminent

U.S. President George W. Bush said on Monday an announcement on a auto industry rescue was not imminent, leaving the industry's fate clouded in uncertainty for a little longer.

AP

Chevrolet Dealership

"We're not quite ready to announce that yet," Bush told reporters on Air Force One during a flight from Baghdad on an unannounced visit to Afghanistan.

He had been asked when he might make an anticipated announcement about tapping a $700 billion financial industry bailout fund to aid General Motors [GM4.100.16(+4.06%)], Ford Motor [F3.130.09(+2.96%)]and Chrysler.